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What makes a compensation claim more expensive than expected?

At a glance:
Without any apparent medical explanation some seemingly straightforward compensation claims turn out to be much more expensive than the insurer predicted. This study investigated the characteristics of these claims, and identified some risk factors for this outcome.

The actual cost of a claim is likely to be much greater than predicted if:

A lawyer becomes involved (by far the greatest risk factor)
The claim is for low back pain
The claim takes longer than 2 years to process
The claim is not reported within 5 days of the accident
Perspectives:
Employee
Workers compensation claims often become unexpectedly complicated and expensive because of a dispute.

When a dispute occurs, people feel frustration and anger, and can blame others. Each person in the dispute becomes focused on proving they are right, and a resolution becomes harder to achieve.

We all face these issues at some point in our lives; it might be in a relationship, a work dispute, or it might come after a work injury. Sometimes a person can achieve satisfaction and prove their position, but it's just as likely that they will lose sight of their priorities and end up with a worse outcome.

If you become involved in a dispute, you are likely to spend a lot of time trying to prove your position. Increased stress and anxiety will result, along with damaged relationships. Once a dispute begins, results usually come at a high price.
Employer
Unexpectedly expensive claims are usually the result of workplace disputes. If you can make sure all parties understand the situation and one another's perspectives, and sustain productive communication, then disputes can usually be avoided.

It is also important to be proactive in your approach to preventing disputes. A positive workplace culture and good employer/employee relationships reduce the likelihood of disputes, and the high costs that can follow.
Treater
Medical conditions can cause long-term incapacitation. In most cases, however, a failure to return to work is determined by other factors. It has been said that return to work is a socially predicated event.

As patient advocates, physicians should encourage rehabilitation
rehabilitation
The process of helping a person back to their former abilities and quality of life (or as close as possible) after injury or a medical condition.
 rather than disputes, since positive rehabilitation is associated with the best patient outcomes. Evidence from other research shows the negative health effects of continued time away from work; health professionals can be clear with patients that an early return to work means better quality of life.

People are entitled to seek legal advice and they are entitled to appropriate compensation. This is a position that should be made clear to patients. It should always be stressed, however, that rehabilitation is associated with the best health outcomes, and legal action is associated with poorer rehabilitation results.
Insurer
The later a claim is lodged the more likely it is to become expensive. However, the major predictor of increased expense is the involvement of a lawyer.

Legal involvement is often the result of a lack of support for the claimant in the early stages of an injury. People can also attend solicitors if they believe they have a right to be compensated for the injury. They may have realistic or unrealistic expectations about the level of compensation.

These problems can be mitigated by ensuring early communication, providing clear information and resolving compensation issues as quickly as possible.
Original Article, Authors & Publication Details:
E. Bernacki1, L. Yuspeh2 and X. Tao1 (2007).

Determinants of Escalating Costs in Low Risk Workers' Compensation Claims. Journal of Occupational & Environmental Medicine 49(7): 780-790.

1Division of Occupational and Environmental Medicine, Baton Rouge, Louisiana.
2Johns Hopkins University, School of Medicine, Baltimore, Maryland; Louisiana Workers' Compensation Corporation, Baton Rouge, Louisiana.
Background, Study Objectives, How It Was Done:
This study was carried out in Louisiana over 5 years, using data from the Louisiana Workers' Compensation Corporation, a large private insurance company.

The researchers analysed 36,329 workers' compensation claims in the database,
database
Store of information (e.g. published research articles). Information can be retrieved by searching (e.g. for key words, authors, or titles).
 classifying each according to expected and actual claims cost, and dividing the cases into 4 groups:

Low expected cost/low actual cost
Low expected cost/high actual cost
High expected cost/low actual cost
High expected cost/high actual cost

The researchers were interested in the characteristics of cases with low expected cost and high actual cost. These cases almost always occur because something changes unexpectedly after the injury occurs. The researchers hoped that if the risk factors for this transition were known, then perhaps the high actual cost outcome could be prevented.

Factors investigated for risk of high actual cost were:

The claimants age, gender and marital status
The size of the claimant's premium
The size of the employer's company
The date of injury, date the claim was entered into the company's database, date the expected cost was estimated and date the claim was closed
The nature of the accident or diagnosis
Whether or not the person was represented by a lawyer, and the date the lawyer became involved
Medical, indemnity and other payments made
Study Findings:
Of the 36,329 claims analysed:

86% were low expected cost/low actual cost
2% were low expected cost/high actual cost
10% were high expected cost/low actual cost
2% were high expected cost/high actual cost

The 4% of claims with high actual costs represented 64% of the total claim costs (about half the cost fell in each classification).

The expenses for low expected cost/low actual cost claims were mainly due to medical costs, while sickness absence costs were much higher for high actual cost claims.

The researchers found that the actual cost of the claim was likely to be higher than expected if:

A lawyer was involved

Lawyers were involved in 5% of low expected cost/low actual cost claims, compared with 72% of high actual cost claims

The claim was for low back pain

Low back pain claims accounted for about 7% of all claims, compared with 30% of low expected cost/high actual cost claims and 25% of high expected cost/high actual cost claims.

It took more than two years for the claim to be settled

Claims that took over 2 years to process were 4 times more expensive then claims that took between 1 and 2 years to be resolved. So long as the claim took less than two years to close, time was not a significant factor. Costs escalated sharply, however, at the two year mark. The costs were more likely to be underestimated for claims that were open for more than 2 years.

The claim was not reported within 5 days of the accident

Claimants were more likely to have claims with high actual cost if they were:

Male
Over 40 years old
Married, separated or divorced, rather than single
Employees in smaller companies
Claimants for whom the employer paid a larger premium

The involvement of a lawyer was by far the strongest risk-factor for a claim becoming costly. It was an especially strong predictor of low expected cost/high actual cost claims.

The next strongest risk factor for high cost claims was low-back pain.
Conclusions:
In about 2% of cases, workers compensation claims end up being much more expensive than initially expected. In these cases:

A lawyer is often involved
The claimant is often more than 40 years old
The claim is often for back pain
The claim frequently takes more than two years to process.

The involvement of a lawyer is by far the most important risk factor for an unexpected escalation of cost.

This study extends the evidence that medical case management, return-to-work programs and vocational
vocational
Related to work or career. Vocational rehabilitation focuses on the process of returning to the workforce.
 rehabilitation reduce costs for insurers, by reducing the time it takes to process a claim. It also identified the types of claims that, from the insurer's point of view, are most in need of these strategies.

The results of this study are supported by other research conducted in various locations in the US.
References:
PubMed Abstract
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